Will it work?

According to an article in the Wall Street Journal, companies are buying oil now to sell later when prices rise.

So my question is will it work?

Not an uncommon strategy by any means. Buy low, sell high. The ship itself holds 3 million barrels of oil. But that isn’t the only one.

Other major traders including Vitol SA and Koch Supply & Trading Co. Ltd also have chartered super tankers with a combined total of more than 30 million barrels.

Of course the reason for all of the stockpiling is the oversupply in the market. The old supply and demand equation. The oversupply of oil has caused its price to be lower than what the price is thought to be in the future.

Also a contributing factor is that the USA isn’t as dependent on oil from OPEC as we used to be. We are getting more than enough oil now from our own production and from Canada and Russia that we don’t really care much about what OPEC does.

And you know what? That feels pretty good doesn’t it?

And OPEC can’t do a thing about it either otherwise they would have decreased their own supply in an effort to drive the price up. Why can’t they do it this time? Because they would just be shooting themselves in the foot. They would be driving their price up while the supply from North America and Russia remains low.

So back to my original question. Will it work? Will the traders be able to save enough oil off shore to make money off of it when and if the price goes up again.

Oh, now there is the meat of the question? Will the price go up again? No one know the answer to that any more than no one knew that the price would be this low again.

You never heard anyone before this saying, “hey, you know the price of oil is going to go back down to $40 a barrel!” Heck no that didn’t happen because as much as the prognosticator think they can predict the future – they can’t.

My answer to the question is no, it won’t work. Why? Because the cost of storing the oil is going to be more than selling it.